Getting A Mortgage As A First-Time Homeowner

The process of buying a new home, as we all know, can be very long and complex. Arguably the most complex of this entire process is introduced right from the beginning, the mortgage. The process of figuring out what mortgage to get, how to get it, and what it should be for, should all be taken into consideration before embarking on the home buying process. This will be the start of a series of blog posts tailored to the mortgage process. Below are the key steps, in somewhat specific order, that we will cover in depth to educate you about the mortgage process:

 

  • Get pre-qualified and pre-approved

  • Establish good credit

  • Come up with an affordable down payment

  • Select a good mortgage type and lender

 

First, let’s focus on what pre-qualification and pre-approval is, and means. For those that are not familiar, a mortgage is simply a loan that a person will take out so that they can purchase a house. This loan is paid back over many years until the house is fully paid off and owned by the buyer. Here is a great article from Trulia which provides eight useful steps that should be followed when getting a mortgage. As hinted above, the two most important steps are to get pre-approved and pre-qualified.

Pre-Qualification

Pre-qualification is when the home buyer provides their bank with all of their financial records; these include income as well as all of their assets. An article from Investopedia provides a breakdown, and the differences between pre-qualification and pre-approval. Additionally, it also includes a sample letter from a bank which tells real estate agents how much a buyer can afford. Sellers will generally only accept offers from buyers who prove they can afford the house. Otherwise, a seller may not want to waste their time.

It is important to note that a pre-qualification amount is more of a guidance. Just because you can afford something, does not mean you should. Perhaps you have other financial commitments that need to be accounted for, or perhaps you do not want the stress of living paycheck to paycheck. After you understand what you can afford, you should look to consult a financial advisor or trusted friends and family to discuss what you would actually feel comfortable purchasing. Budgeting tools are a great way to figure out this amount as well, which we talk about in our previous blog article Top Apps You Need as a First Time Home Buyer.

Pre-Approval

To get pre-approved is when the bank that is holding your loan verifies your sources of income, your amount of debt and other qualities of your financial situation. Getting pre-approved for a mortgage also helps you understand how much you are financially able to afford. This can make you a better home buyer. A good mortgage lender communicates with the buyer, asks good questions, and closes promptly. A good way to establish good credit is to make sure that there are no outstanding charges on your card, and to pay all your bills on time.

 

Stay tuned for our next article which will focus on what a credit score is and how to improve it if you desire.

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